Cynical Optimist

This plan is being advanced by Dave Ramsey, a nationally syndicated finance talk show host, as a common sense approach to solving the credit crisis. He didn’t come up with these ideas, but is instead packaging into one place what others have said.

Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps:

Common Sense Plan.

I. INSURANCE

A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.

B. In order for a company to accept the government-backed insurance, they must do two things:

1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while working with the borrower—again limiting foreclosures and ruined lives.

2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.

C. This backstop will cost less than $50 billion—a small fraction of the current proposal.

II. MARK TO MARKET

A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.

B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.

III. CAPITAL GAINS TAX

A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.

B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.

As far as simple plans go, this one isn’t bad. I would probably drop the Capital Gains Tax provision because, even if it makes sense, that dog just ain’t gonna hunt.

I’m sure there are other ideas that can be used to loosen the credit markets not included here. The key is we must let the market work with minimal interference from the Federal Government. They created the ground rules this mess comes from and we don’t need them to make it worse.

No bailout for the fat cats. If they are the smartest guys in the room then they need to pay a heavy price for not being so smart. Don’t let people scare you into believing the bailout has to go through or it’s all going to come apart. They’re just trying to save their own, and their friends, ass.

Speaking of who caused it. There should be a nonpartisan, not bipartisan, commission established to investigate who caused this mess. I want names and I want resignations.

Tags: Politics, Random Thoughts by Cynical Optimist
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As this video clearly shows, the Republicans tried to bring Fannie Mae and Freddie Mac under control and the Democrats blocked them. One of the chief blockers was none other than Barney Frank, that paragon of left wing righteousness who has been smack dab in the middle of negotiations on the bail out package, and who led the charge in attacking John McCain and other Republicans this past week.

It’s kind of a long video but you won’t get bored. At least not if you care about fixing the problem and getting to who, what, where, when and how this happened. Bill Clinton makes a special appearance at the end of the video where he acknowledges what this video reflects. That part was recorded just last week.

CHRIS CUOMO, ABC NEWS: A little surprising for you to hear the Democrats saying, “This came out of nowhere, this is all about the Republicans. We had nothing to do with this.” Nancy Pelosi saying it. She signed the ‘99 Gramm Bill. She knew what was going on with the SEC. They’re all sophisticated people. Is that playing politics in this situation?

BILL CLINTON: Well, maybe everybody does that a little bit. I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.

Pass it on. Tell your friends. These people need to be voted out.

Tags: Politics by Cynical Optimist
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Maybe you’ve seen this one:

I’m against the $85,000,000,000.00 bailout of AIG.

Instead, I’m in favor of giving $85,000,000,000 to Americans in
a We Deserve It Dividend.

To make the math simple, let’s assume there are 200,000,000
bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman
and child. So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billon that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a

We Deserve It Dividend.

Of course, it would NOT be tax free. So let’s assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage – housing crisis solved.
Repay college loans – what a great boost to new grads
Put away money for college – it’ll be there
Save in a bank – create money to loan to entrepreneurs.
Buy a new car – create jobs
Invest in the market – capital drives growth

Pay for your parent’s medical insurance – health care improves
Enable Deadbeat Dads to come clean – or else

Remember this is for every adult U S Citizen 18+ including the folks
who lost their jobs at Lehman Brothers and every other company
that is cutting back. And of course, for those serving in our Armed Forces.

If we’re going to re-distribute wealth let’s really do it…instead of trickling out a puny $1000.00 ( “vote buy” ) economic incentive that is being proposed by one of our candidates for President.
If we’re going to do an $85 billion bailout, let’s bail out every adult U S Citizen 18+

As for AIG – liquidate it.
Sell off its parts.
Let American General go back to being American General.
Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.

Here’s my rationale. We deserve it and AIG doesn’t.
Sure it’s a crazy idea that can “never work.”

But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion

We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC. And remember, The Real Plan only really costs $59.5 Billion because $25.5Billion is returned instantly in taxes to Uncle Sam.

This email is part of the problem with creating an understanding of the current crisis in the financial markets. I don’t know who came up with this particular piece of stupidness but the math is way off the mark.

$85 billion divided by 200,000,000 is $450. Not $450,000.

The next time you get an email like this, break out the calculator and check the math yourself.

Tags: Politics, Random Thoughts by Cynical Optimist
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“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”

- Joseph J. Cassano, a former A.I.G. executive, August 2007

Let’s be clear. If an investment is too complicated for the average American to understand, it’s probably not a good idea.

Now, I’m not gonna sit here and tell you I understand all the in’s and out’s of modern day finance. I don’t.

And that’s the problem.

Let’s take a look at some of this article in the New York Times.

Although America’s housing collapse is often cited as having caused the crisis, the system was vulnerable because of intricate financial contracts known as credit derivatives, which insure debt holders against default. They are fashioned privately and beyond the ken of regulators — sometimes even beyond the understanding of executives peddling them.

That’s not too complicated. Insuring debt holders against default. I can understand that. Let’s look at more.

Morgan proposed the following: A.I.G. should try writing insurance on packages of debt known as “collateralized debt obligations.” C.D.O.’s. were pools of loans sliced into tranches and sold to investors based on the credit quality of the underlying securities.

Because the London unit was set up as a bank and not an insurer, and because of the way its derivatives contracts were written, it had to put up collateral to its trading partners when the value of the underlying securities they had insured declined. Any obligations that the unit could not pay had to be met by its corporate parent.

So began A.I.G.’s downward spiral as it, its clients, its trading partners and other companies were swept into the drowning pool set in motion by the housing downturn.Mortgage foreclosures set off questions about the quality of debts across the entire credit spectrum.

When the value of other debts sagged, calls for collateral on the securities issued by the credit default swaps sideswiped A.I.G. Financial Products and its legendary, sprawling parent.

Do you understand any of that?

I certainly don’t.

The American economy is based on a very simple concept. Create a valued product and sell it. It can’t get much more simple. If complicated financial products have the power to take our economy down, then maybe we should let them.

Let’s start all over.

Will it be painful? Yes.

Will people suffer? Yes.

Will there be food lines like in the 1930’s? It’s not likely, but anything is possible.

Will we be better for it in the long run? Yes.

Tom Brokaw from NBC wrote a book about the Greatest Generation, those that fought in World War II and came home to create the most powerful economy in the history of the world. An economy based on the simple concept of creating a good product and selling it.

It’s time for a new Greatest Generation.

Let Wall Street fail.

Tags: Politics, Random Thoughts by Cynical Optimist
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